NFP day

NFP Friday Tuesday was today, we saw a print of 148k on estimates of 18k, nowhere near good enough (~200k) change needed to spur on tapering at the moment. On the plus side the Unemployment rate dropped to 7.2% but the headline Sep NFP number was the key, and that came in weak.

The reaction across the markets was entirely predictable, stocks traded higher, bonds traded higher and the USD got slammed across the board.

But, soon after the reading, cross asset correlations started to break down considerably. One of the key determinants of the USDJPY pair is the Interest rate differential between UST's and JGB's. As JGBs are shut, USTs drive the USDJPY price action through the US session.

we can see here the clear divergence post-NFP and we can see my tweet suggesting shorting USDJPY and hedging short USTs

We can see the USDJPY is purple and the US 10 year futures contract (ZN_F) inverted to represent yield, the correlation is normally clear but the divergence was shocking to me.

So as tweeted so shorting both (when weighted properly) would result in a tidy convergence trade, resulting in a 0.3% return, but the advantage here is that this was well hedged against market volatility and represented a great risk-adjusted return.

I suppose the moral here is to follow me on twitter for more simple trades like this :)